Won't the high initial claims of 2014 cause UNDER reserving for subsequent years - since the average link ratio for that dev period will decrease, giving lower ultimates? Thanks, Nick
normally, if you see reserve from chain ladder for a particular AY,\( reserve=paid \times (cumulative~paid~development~factor - 1) ~ or = incurred \times (cumulative~incurred~development~factor)~less~paid \) now, for 2014, only first development period is developed... so it will not affect any development factor, and reserving for year previous than 2014 show same as normal... (no problem) reserving for 2014, cumulative development factor is multiplied to 2014/0... But the amount in 2014/0 is very big, so the ultimate and reserve outputted will be very big... (problem - figure in 2014/0 is likely one-off and likely settled enough(next development figure should not be very high), so if you do not make this figure on as-if-normal basis(by removing, and adjust after the valuating), it will overestimate reserve)
yes fair enough, I mis-read the question, I incorrectly thought there was also a 2015 policy year, in which case the increase in the 2014 year reserve would have been more than offset by a decrease in the 2015 reserve. Thanks, Nick
